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* Nikkei up 0.9 percent, Topix up 0.7 percent
* Foreign hedge funds are buyers - analyst
* Investors are short on yen, long on Nikkei - analyst
By Ayai Tomisawa
TOKYO, Nov 30 (Reuters) - Japan's Nikkei share average rose
on Friday to a seven-month high as a weak yen encouraged
investors to chase leading exporters on hopes of
stronger-than-expected earnings.
The benchmark Nikkei has rallied 9.5 percent while the yen
has weakened over the past two weeks, taking the share market's
month-to-date gain to 6.2 percent, on track for its best monthly
performance since June.
By the midday break, the Nikkei advanced 0.9 percent
to 9,483.49, trading comfortably above its 5-day moving average
at 9,400.99 after moving back and forth between positive and
negative territory in early trade. The index reached an intraday
high of 9,492.21, the highest level since April 27.
Exporters rose, with Canon Inc adding 2.1 percent
and Nissan Motor Co gaining 1.4 percent.
The dollar last traded at 82.46 yen.
Analysts said that sentiment remains positive for earnings
for bellwether exporters as the dollar holds above 82 yen, but
volume may be subdued due to the fast-paced rise in the market
and uncertainty surrounding U.S. budget talks.
A day after expressing optimism over a U.S. "fiscal cliff"
deal, senior Republican John Boehner said there had been no
"substantive" progress made in the last two weeks, denting hopes
for a deal to prevent the U.S. economy from slipping into a
possible recession next year.
"The market is subject to mood swings by investors who pay
close attention to small developments in U.S. budget talks, but
as long as the yen does not rise far from the current levels, we
may see a slow but steady rise in the market," said Takuya
Takahashi, an analyst at Daiwa Securities.
The market was also closely watching comments by Shinzo Abe,
leader of the main opposition party Liberal Democratic Party
(LDP), he said. The yen has weakened on expectations the LDP
will win a Dec. 16 election and increase pressure on the central
bank to aggressively ease monetary policy.
Abe has called for the Bank of Japan to set an inflation
target of 2 percent and embark on "unlimited easing".
DOMESTIC INVESTORS TURN SELLERS
Market observers said foreign investors remain positive on
bellwether exporters while the dollar holds above 82 yen, but
domestic investors are starting to take profits as many are
skeptical the central bank will give in easily to Abe's demands.
Domestic investors could turn into sellers when the Nikkei nears
the 9,500-mark, they said.
"Their positions are like this ... short on the yen and long
on the Nikkei. Buying (in the equities market) is mainly by
foreign hedge funds such as commodity trading advisors who are
chasing the Nikkei 225 futures higher," said Norihiro Fujito, a
senior investment strategist at Mitsubishi UFJ Securities.
"Domestic players are becoming sellers because they take a cold
look at their political climate."
Notable gainers included Hitachi Ltd and Mitsubishi
Heavy Industries Ltd, which rose 3.7 percent and 1.6
percent respectively after the two companies said they would
combine their thermal power businesses to better compete against
bigger overseas rivals General Electric Co and Siemens AG
.
The broader Topix gained 0.7 percent to 784.83.